Tuesday, March 6, 2018

Just over a decade ago, I barely noticed in passing a rally in Piazza Maggiore, Bologna, part of the quirkily titled 'vaffanculo' day (roughly translated, '**** you day') organized by comedian Beppe Grillo. The aim was to gather signatures for a referendum banning anyone with a criminal record from standing for election to the Italian parliament. The initiative achieved a spectacular 336,000 signatures, far more than the 50,000 necessary to hold a vote. The campaign was the parting shot of what became the Five Stars Movement, the undisputed winner of Sunday's election.

The slogan was not just a joke. The M5S is a difficult movement to define, combining utopian visions of extensive popular participation in politics through the internet, environmentalism, libertarian values, hostility to the euro and occasional anti-immigrant demagoguery. But what is very clear about the M5S is its unequivocal and aggressive rejection of Italy's ruling class, and indeed the current political order more generally. If the M5S has won almost a third of the vote in only its second general election, winning almost twice as many votes as any other party, this tells us that a lot of Italians have had enough. On top of this, the xenophobic League and the fascist Brothers of Italy won 18 per cent and 4 per cent of the vote respectively. For a comfortable majority of Italians, '**** you' is the best description of their feelings about how the country is governed.

It is easy to fit this result into the broad pattern of a populist wave afflicting western politics, and undoubtedly resentment towards immigration and authoritarian rhetoric were a big part of the League's campaign in particular. And indeed the likely outcome of this vote, whatever the eventual government that emerges out of the messy negotiations that will follow, will be a toughening of the Italian state's approach to the refugee crisis and the rights of migrants in general. The scapegoating did not take long to begin, as a Senegalese man was shot dead in Florence, apparently randomly, only hours after the polls had closed. The people have spoken, and politicians have heard that message.

But immigration is not the problem. Indeed, it is the solution for a country in deep demographic crisis. The problem is that the Italian economy has barely grown since I rolled up in Florence to start graduate school. Since the 1992 financial crisis, Italy has followed an ambitious programme of structural reforms, cutting wasteful public spending, raising taxes and combating evasion, privatizing banks and state-run industries, liberalizing labour regulations, abolishing price controls and introducing a powerful anti-trust authority, and of course, joining the euro. Yet GDP per capita has fallen since Italy entered Monetary Union.

The answer from Europe is that Italy needs more "reform". The possibility that the proposed reforms may not be working does not seem to occur to the technocrats and bankers that have cast sentence on Europe's south, blaming the stagnation on loose morals instead. In fact few governments in Europe have shown Italy's restraint. Despite an aging population, public spending has barely grown in the past two decades, whilst tax revenues have risen, meaning that since 1993, with very little growth in GDP, the Italian government has been running a budget surplus, net of borrowing costs.

The vote for the Five Stars Movement reflects many different gripes and ideas about how to solve Italy's problems, but what it has in common is a desire for political change. It is hard not to read as a rejection of the austerity and structural reform mantra emanating from Brussels, and indeed from policy elites in Rome and their liberal intellectual backers in places like Bocconi University. Following on from the political earthquakes in the US, UK, Greece and Spain, Italy is another data point confirming the death of the liberal political order that brought us austerity, inequality and zero growth for the 99 per cent. Unfortunately, like Trump and Brexit, the Five Stars Movement is also the perfect illustration of the intellectual confusion we face in attempting to move beyond it.

Sunday, October 15, 2017

I have been trying to get my head around the peculiarly fevered and intemperate tone that passes for political debate in much of the democratic world these days, and particularly in some of the countries I know best: the UK, the US and Spain. Not long ago, it would have seemed inconceivable for a British conservative journalist to accuse a Conservative Chancellor of the Exchequer of treason, especially if the deemed treachery appeared to be reluctance to increase the government deficit for some ill-specified contingency fund. Obviously, this charge was levelled on Twitter. Similarly, Donald Trump has dragged American political discourse to a place where denying the sitting President's place of birth, as he did until this time last year, appears borderline sane. Everywhere you look people are not just disagreeing about politics, but accusing each other of stupidity, insanity, sabotage, sedition, disloyalty and elitism. Especially, but not only, on Twitter.

Nowhere is this more true than in Spain, where in short order the long-running dispute over the relative powers and fiscal arrangements between Catalonia and the Spanish central government has spiralled into police brutality, a unilateral declaration of independence (albeit apparently suspended) and a threat from Madrid to invoke an emergency clause of the constitution to suspend Catalonia's institutions of self-government. The merits of the case for or against Catalan independence are complex and can be left for another post. Here I want to focus instead on the way people are talking about the issue: with barely concealed frustration and incomprehension of the reasons of the other side.

The President of the Catalan government Puigdemont claims to have a mandate to declare independence on the basis of a vote declared illegal by the Spanish constitutional court, held with unclear procedures, alleged opportunities to vote multiple times, and most of the electorate not taking part. Polling suggests between 40-50% of Catalans favour independence, and around a third of Catalans vote for parties that are firmly against the very idea. Yet suggestions that unilateral secession might be politically and legally problematic are often dismissed with a wave of the hand and irate reminders of Catalonia's long history of subjugation to Spain, Woodrow Wilson's 14 points, and appeals to the 'dignity of nations'.

Mariano Rajoy, and unfortunately the King of Spain, seem to think that invoking a constitution drawn up four decades ago in the shadow of Basque insurgency and a twitchy military obsessed with the unity of Spain is the only possible framework for dealing with the country's fast evolving political moods. Since this framework does not allow a self-determination referendum to take place, the strong support for such a vote in Catalonia was dismissed as illegal. Worse, police were sent in to confiscate ballot boxes, and there were reports of hundreds of people injured, a small number seriously. The pictures made grim viewing. Yet, the King's crude and obtuse speech on the day after the vote offered no solace to around two million Catalans who are prepared to march, vote and defy the truncheons in pursuit of their dream. Instead, he accused the Catalan institutions of 'disloyalty'.

Not only has political debate become absurdly polarized, the politicians throwing abuse at each other almost seem to be colluding to make each other's task easier. Both sides of this debate appear more than ready to invoke the horrors of the Spanish Civil War to score a political point. Last week a conservative politician reminded Puigdemont of the fate of the last Catalan leader to invoke independence: Lluis Companys was tortured and killed in a Francoist prison 77 years ago. The Catalan Left party, of course, organized an event to commemorate Companys' murder, held today. Intellectuals do no better: some of the contributions from social scientists have shown scant interest in sober rigorous analysis (no links, for reasons I hope you understand).

Spain's transition to democracy in the 1970s was based around a determination on the part of the leading politicians of the time to avoid a return to conflict. Political scientists described the transition process as an example of 'consociationalism', a concept coined by Arend Lijphart to describe post-war democracy in the Netherlands. In a consociational democracy, political elites work to overcome social divisions by establishing stable patterns of power-sharing between different groups, absorbing political tension and downplaying differences between the groups to avert open conflict. Politics becomes a way of weakening social conflict and institutionalizing cooperation between people who may have little in common. A good recent example of such arrangements is Northern Ireland, which is facing its own pressures as Brexit threatens to unravel its consociational model.

But what we are seeing in Spain in 2017, and indeed across many of our democracies, is the opposite: what we may as well call 'dissociationalism'. Rather than working to absorb and channel conflictual impulses in society, politicians such as Rajoy and Puigdemont are mobilizing, exaggerating and magnifying conflict. Catalan nationalism, almost exclusively peaceful, has long paraded flags and other symbols of identity inside Catalonia. But the spiralling of the independence dispute has lead to a corresponding surge of nationalistic symbolism in the rest of Spain. The photo below was sent to me by a friend in Madrid. In thirty years I have never seen Spanish flags hanging from balconies in the capital.

Why is this happening? In part, real social divisions are present and they have been made more acute by the deep economic crisis afflicting Spain and most other democracies. In hard times, there is no money to smooth differences, and everyone feels put upon (Catalans, in particular, feel aggrieved by their fiscal surplus with Spain). But politicians are also deliberately mobilizing these divisions for electoral gain: for example, the former Catalan nationalist leader Artur Mas, on the eve of his shift to a pro-independence position, was offering his parties' votes to Rajoy's Partido Popular in the Spanish Congress in exchange for reciprocal support in the Catalan Parliament. His volte-face in September 2012, abandoning compromise with the Spanish right and opting for independence, was a political calculation which in turn had dramatic effects on wider support for independence in Catalonia, as we see below.

The weakness of incumbent elites - the mainstream Catalan nationalist coalition which has governed Catalonia for most of the period from the first autonomous elections in 1980 until now has haemorraged support over the past decade - is an important reason for the increasingly conflictual nature of their discourse. Consociationalism, to be successful, requires strong political parties, cultural associations, and trade unions to act as 'pillars' holding together social groups in such a way as to allow elites to make compromises on their behalf. Unfortunately political parties and other organizations in western democracies are increasingly fragile and distant from their constituents. Having to preside over economic decline weakens them further, and mobilizing resentment becomes first a temptation, and then a necessity as radical insurgent parties outbid them from the extremes. The Catalan nationalist leadership, like the Partido Popular in the rest of Spain, has become embroiled in a series of major corruption scandals over the past decade, creating a strong incentive to shift voter anger away from politicians and onto out-groups to shore up support.

Going for the politics of dissociation is a short-sighted strategy. Like Brexit or Trump's promises to Make America Great Again, Catalonia's pro-independence movement is unlikely to produce any miracles. Even should a majority of Catalans support it, and even if the rest of Spain agrees to a painless separation (and there is no indication that will happen), sorting out the logistics and international ramifications of such a shift would be difficult if not intractable, and undoubtedly painful. More than a dozen companies have hastily moved their corporate headquarters out of Catalonia in the past week. If things escalate, jobs and capital will follow the paperwork. At that point, politicians will have to either step back from the brink and lose face, or engage in a chicken game strategy in the hope their opponents will back down. And there is not much comfort to be had from the history books if that happens.

Saturday, June 10, 2017

After the Brexit
vote in June 2016 was followed by the unexpected victory of Donald Trump in
November, an emerging theme amongst the commentariat was that the combination
of economic stagnation, immigration and a wave of terrorist attacks was driving
politics to the populist right in western democracies. This reading of
contemporary politics has been so influential that it provided the intellectual underpinning for Theresa May’s ambitious strategy of calling an election to
exploit the populist turn of ‘white working class’ voters. The fact that this
gamble has clearly failed – May brought forward the election by three years yet
turned a narrow majority into a hung parliament – is already being blamed on
the Tory leader’s own personal limitations, her over-dependence on a narrow
coterie of advisors, and specific mistakes made in the campaign. But in fact it
is less surprising than it seems.

During the
election campaign, some broadsheet newspapers published remarkable data showing
that only Greece – Greece, the economic cautionary tale for the 21st
century – has endured a worse performance in living standards since the 2008
financial crisis than the United Kingdom. The Conservative party has been in
office for 7 of the 9 years since the crisis, and according to many influential
economists, the austerity programme followed by these Tory governments carries
a large share of the blame for this poor performance. Last year’s referendum on
Brexit became an opportunity for some of Britain’s poorest citizens in its most
depressed regions to express their fury at economic decline and the squeeze on
incomes and public services. Theresa May’s smart footwork in abandoning her
pro-Remain stance and presenting herself as the leader to achieve a
full-blooded Brexit could not entirely conceal her role as a major figure in
the Conservative and coalition governments over this period. May was a novelty
in June 2016; by June 2017, she had become the incumbent, responsible for the
NHS crisis, the social care crisis, the housing crisis, the wage freeze, and
student debt.

The 2017 UK election,
therefore, is beginning to look like yet another case of voters punishing
incumbent governments for their failure to pull the economy out of the comatose
state provoked by the financial crisis of almost a decade ago. If we look
around the advanced western democracies, electoral ‘earthquakes’ are becoming a
matter of routine, with governing parties suffering electoral meltdowns and the
traditional parties facing challenges from a variety of anti-system parties on
both left and right. This year so far, the Socialist parties in France and the
Netherlands have been unceremoniously booted out of office and reduced to a
rump, in the former case by an independent candidate who was not backed by any
party. Last year, not only did Donald Trump, a man with no experience of political
office at all, win the US presidency, but a grouchy independent Socialist whose
ideological sympathies that made him a pariah in the US Senate almost
took the Democratic nomination. This is not a good time to be a member of the political
establishment.

Gordon Brown and
Ed Miliband, Labour leaders who were in office at the time of the 2008
financial crisis, are now long gone, and the Labour party is led by a figure
who may be controversial and out of step with public opinion on a number of
issues, but who is not the remotely tainted by association with the
policies and choices that led to Britain matching Greece for economic distress.
Theresa May, on the other hand, made timid hints at a shift towards a more ‘caring’,
one nation Conservatism, but had no real story to tell about how this could be achieved. In the end her election campaign was a very crude attempt to cash in
on her supposed authority as Prime Minister, and her tough stance on
immigration. Yet many voters regarded Brexit as a done deal, and were clearly
rather more interested in hearing about how she would improve the economy and
public services, issues that she never actually addressed.

Jeremy Corbyn
focused his campaign very strongly on a set of fairly standard left-leaning policy ideas relating to the economic and the welfare state. The cuts to the NHS and
schools would cease, university tuition fees – the highest in Europe – would be
abolished, Britain’s expensive and inefficient railways would be taken under
state control. Whilst Theresa May repeated ad nauseum that she would provide ‘strong
and stable leadership’, rarely mentioning precisely what policies she would
implement, Corbyn hammered home a message that fiscal austerity was unnecessary
and cruel, and that Labour would end it. The Tory debacle on social care, when
May proposed a plan in mid-campaign to use the homes of dementia sufferers to
pay for their care, inadvertently made Corbyn’s point for him. The hamfisted attempts
to reverse the policy only served to undermine her central, perhaps sole,
message: that she alone had the toughness and single-mindedness to steer
Britain through the challenging times ahead.

Theresa May has
therefore become, after less than a year in Number 10 Downing Street, the
latest victim of popular wrath against political elites. The evidence is
stacking up that citizens across the democratic world have had enough of an
economic system that delivers spectacular financial rewards for a minority yet
stagnant living standards for everyone else. Established political parties have
lacked ideas on how to address this economic failure, and even the parties of
the centre-left, whose voters have suffered the most from the crisis, have mostly
had little to say about how to improve things. As a result, new political
leaders who appear to offer some hope of change are emerging almost everywhere.
The mainstream political elites are on notice: austerity and inequality make
for angry and unpredictable voters.

Monday, October 3, 2016

As Martin Sandbu pointed out last week, Brexit has
to mean less free trade, despite what Liam Fox says, because less access to the
single market means greater barriers to trade (whether tariffs or the more relevant 'non-tariff barriers to trade': regulations, rules of origin, and so on). Any
potential gains (new free trade agreements) are in the future, and moreover not
that convincing in any case (because of Britain's weak bargaining position, the loss of access to trade
agreements through EU, and the time and costs involved in reaching agreements).

Moreover, the Brexit coalition (a bare majority of voters, though a tiny minority in parliament) is deeply divided on what follows Brexit.

-On the one hand, free traders
like (supposedly) Fox and more coherently Daniel Hannan see the EU
as a source of restrictions on market freedom, and therefore argue that leaving will reduce regulation and improve economic performance. (This is
entirely implausible, since most EU regulation is about reducing barriers to
market access, and the UK already has low regulation by international
standards). To the extent that labour market freedom is part of this package,
it would not imply any reduction in immigration.

-On the other, the UKIP/Tory
nationalist strand of the coalition is vehemently opposed to any restrictions
on UK control of borders. This implies restrictions on the ‘labour’ part of
market freedom (heavier regulation to achieve fewer immigrants) and
control/regulation over goods and services entering the UK (leaving EU customs
union). This implies lower immigration, but also less trade, and potentially
the death of the UK’s recent model of high openness to FDI and speculative
capital.

The incoherence of the Brexit position has
so far been resolved by a combination of wishful thinking and bullshit. The
wishful thinking part revolves around the notion that the EU needs the UK so
badly that it will let us keep all of the privileges of EU membership without
any of the obligations. The bullshit part involves simply refusing to
understand the incoherences of the Brexit position (in particular, the idea
that you can have free trade whilst voluntarily exiting the world’s largest,
and our nearest, free trade bloc).

What both of these positions have in common
is their solipsism. The obvious inconsistencies in Brexiter thinking are resolved
by assuming an Anglo-centric view of the world in which others will willingly
submit to our demands, however unreasonable, or in which simply by virtue of
being who we are, the contradictions of Brexit just don’t actually apply.

Examples of the former are: Germany sells
us cars, so they will not want us to impose tariffs (we sell more cars to the EU than Germany sells to us; Germany has not hesitated to undermine other export
markets, eg the Eurozone periphery, when it suited them; tariffs are actually required under
international law unless the EU as a collective decides to offer a
comprehensive free trade agreement within two years).

Examples of the latter are: Britain can now
freely export all around the world, free of EU shackles (we have no obvious
competitive advantage to draw on – we are a high wage, low skill country a long way from
non-EU markets); France will still buy our jam, because it’s really good (so is
Bonne Maman); we had free trade without immigration in the 19th
century, why not now (we ran an Empire).

This solipsism is otherwise known as
nationalism. In a complex world where we face huge challenges (paying off our
debts when we don’t actually produce many attractive goods and services, coping
with the turbulence and social disruption brought by our heavy dependence on
financial inflows, the skill shortages and demographic imbalances that act as a
pull factor for migration), it is comforting to retreat into a nationalist
vision of the world in which bad things are caused by our enemies, and if only
we could shut them out, things would be better.

The UK is not alone in this: Trump in the
US and the various right-wing demogogues prospering in Europe at the moment all
draw on the same ideas and sentiments. But the UK has an added toxic
ingredient: our imperial past. The US, as a real existing Empire (albeit in decline) can actually elect
a Trump and this would possibly represent a greater danger to others than to
the US itself. The UK has a collective memory of being in this situation, of
being able to doing whatever it wants, backstopped by military might. But it
is no longer the case. India will buy our exports if we buy its
exports, not because we tell them to do as they are told.

The option of closing our borders whilst
forcing others to open theirs to us is no longer on the table for the UK. It is
imperative that the younger generations who have most to lose from this harsh
reality wake up to the fact, and deny the largely older Brexit voters the pleasure
of torching the fields on their way out just to remember what it was like to be
young.

Wednesday, August 24, 2016

In older posts I have discussed the increasing prevalence in our political discourse of bullshit, political language that rather than being lies or simple rhetoric, has no real relation to the truth at all. The recent Brexit vote in the UK produced many excellent examples of the genre, and Donald Trump's surreal campaign is itself based on an entirely truth-orthogonal promise to Make America Great Again. But this bullshit is not the sole distinguishing feature of contemporary political discussion: we also witness a growth in what can only be termed 'magical thinking'.

Magical thinking is different from bullshit, in that it purports to make claims that are conceivably empirically falsifiable - that is, that have a relation to the truth. There is no way of testing whether Trump will indeed have 'made America great again', in the unlikely event of him actually becoming President of the United States. But we can assess the plausibility of his political proposals - both of them - in terms of real evidence and facts. It will be expensive and futile to build a wall on the Mexican border, it would be political suicide for Mexican government to agree to pay for it, and it is a logistical impossibility to ban Muslims from entering the United States. These are ideas that simply cannot work, and we can clearly show why.

The fact that Trump's supporters are enthused by these fanciful plans shows they are in the grip of magical thinking: they refuse to look at any evidence, and prefer instead to engage in dreaming about a fantasy world they would like to exist. We see much the same kind of reasoning in many other political movements around the rich democracies. Brexiters in Britain refuse to accept that leaving the EU will have a substantial economic cost, when every sensible analysis shows clearly why it is inevitable. Syriza won election in Greece by promising to extract easier loan terms from the European Union, then predictably ended up accepting an even worse deal. The Five Stars Movement in Italy claims that the country's long-standing economic malaise and endemic corruption can be solved by replacing existing elites with 'ordinary citizens', guided by online voting by party members. And so on.

The Labour Party is currently flirting dangerously with magical thinking. Despite the accumulating evidence that Jeremy Corbyn has not only lost control of his own parliamentary party, but is the most unpopular opposition leader on record, thousands of people have joined the Labour Party enthused by its new leadership. Appeals to prioritize winning power in order to actually shift British policy-making in a leftward direction are dismissed as being tantamount to unprincipled 'Blairite' managerialism. The backlash against the uninspired leadership of the party over the past decade and the huge ideological compromises imposed by Blair - who never really was a man of the left - was inevitable and understandable. But this backlash hugely overshot: not only is Corbyn an uncharismatic and uninspiring public speaker with some unpopular views and even less popular associations, but he seems incapable of running any sort of political campaign at all, 'traingate' being the latest miserable example. Yet his victory in the leadership election appears inevitable.

Why is magical thinking so popular? Partly because of the depressing nature of much pragmatic thinking. For the past two or three decades, political decision-making has been in the hands of dismal technocrats, who have presided over a drift towards ever greater inequality and the erosion of public services, whilst leading the world economy to near collapse. It's hardly surprising economists have little credibility. Moreover, politics has never been about citizens painstakingly analysing research reports before taking a position on the key issues of the day: instead, the public has vague ideas about the direction things should move, and politicians succeed when they are able to turn those vague ideas into a political strategy and a set of policies. At the moment, establishment politicians have lost trust and are entirely incapable of doing that.

So the rise in magical thinking is best seen as an expression of a very strong mood that things need to change. Previous waves of popular mobilization were similarly built around vague and naive-sounding demands, from 'flower power' to 'sous les pavés la plage', which however ended up driving political change and ultimately informing policy decisions. We could be witnessing a cyclical shift from a period of 'private interest' - introspection and individualism - towards 'public action' - a more collectively-oriented form of political expression, as Albert Hirschman described in his wonderful book Shifting Involvements. If this is what is going on, it is to be welcomed. But it also carries risks: if the Labour Party is unelectable, the dominant force behind policy could well be the magical thinking of the reactionary right: an increasingly narrow, sectarian politics represented by the Brexit wing of the Conservative Party. If Labour goes for populist mobilization, it had better mobilize a lot of people, and achieve something with this enthusiasm before it wanes, as Hirschman tells us it inevitably will. The shambolic performance of Corbyn's circle so far isn't too promising.

Thursday, June 30, 2016

The shockwaves unleashed by the financial crisis of the late 2000s have finally swept away the established political and economic order of the UK. It took some time coming, but it turned out that neoliberalism isn't so resilient after all. This vote is a sweeping challenge to the model of open markets and deregulated finance that has governed us since the 1980s.

The problem is, the challenge is based on a fantasy. Brexit is a classic catch-all concept, that can mean almost anything. The basic appeal of the Brexit campaign was the notion of 'taking back control', which of course contrasts with the essential logic of the market economy, where nobody has control, and resources (including labour, ie people) are allocated in accordance with the signals we send when we buy and sell things. By 'taking back control', we supposedly allow ourselves to stop things happening that we don't like and that we feel we cannot choose to opt out of: immigration, externally imposed rules, competition for scarce resources such as housing, jobs, doctors' appointments, and so on.

These things are in large part incompatible or simply impossible, but the 'leave' campaign very successfully escaped any real scrutiny on how they were supposed to be delivered simply by leaving the European Union. Voters flocked to the stall offering free goodies.

This reminds me a lot of one the iconic events of the 2008 financial crisis: the collapse of Bernie Madoff's Ponzi scheme. As is well known, Madoff ran a massive, but strangely under the radar, hedge fund that offered remarkably consistent returns for investors, and grew to a colossal size, but which turned out to be a fraud. Madoff's returns were not profits from smart trading, but instead simply slices of the funds new investors provided, doled out to existing investors. When the credit crunch hit in autumn 2008, some investors were forced to pull out, and the flow of new entrants dried up. By December, Madoff no longer had the funds to pay off investors who wanted to cash out, and the game was up. The investors' capital, supposedly invested in various profitable assets, did not actually exist - it had been paid out in fictitious profits, and spent by Madoff himself in running the operation and making a pile of his own.

The basic structure of a Ponzi scheme is that people are persuaded of something that is too good to be true, and as more and more people pile in, the better it looks, encouraging others to suspend disbelief. Until something happens, the flow of new gullible 'marks' dries up, and the reality hits home: you've been had. The same logic drives the development of 'bubbles' in asset markets: valuations are hyped for some apparently plausible reason, more people pile into the market, thus validating the hype, and then at some point reality bites and it comes crashing down.

What happens next is that people get mad. Mad at themselves, yes, for falling for a scam. Definitely mad at the scammer, for stealing their money. But also mad at the authorities, for allowing it to happen. After the Madoff scam was revealed, officials from the SEC (Securities and Exchange Commission) were hauled before Congress and subjected to humiliating questioning as to why they did not see a gigantic multi-billion dollar fraud happening under their noses.

Who should we get mad at when Brexit fails to deliver the nirvana of low immigration, more spending on public services, and the freedom of the UK government to ignore the rules set by its main trading partners? This is what is worrying me. The authorities, of course, gave very clear warnings in this case: they were ignored, dismissed as out of touch 'experts'. Yet they may well be proved right in the end. How will Brexiters react?

My fear is they will cry 'betrayal', especially since powerful forces in the UK political economy will be trying desperately hard to stop Brexit actually happening, for the most part for good reasons. And betrayal is not a concept associated with the mainstream political centre. It is the language of violent extremism. We will not see the end of UKIP even if its dream of a UK outside Europe comes to pass. The poverty, stagnation and decline that is likely to result will stoke more fear and loathing. Will Farage, like Madoff, be the target of our wrath? Probably not. Instead the grown-ups in the room forced to deal with the consequences will be the first to be blamed.

Ponzi schemes in politics last until they have to confront reality, but given the very real constraints on political votes shaping political reality, they can survive for a long time before actually having to pay out. As with Trump in the US, the only true way to convince the punters that Brexit is a disaster is to allow it to happen. And at that point, the scheme brings down the rest of us with it.

Tuesday, June 28, 2016

So, it happened. The great British public, in its wisdom, has chosen to leave the European Union. Despite all the warnings of economic chaos and the costs of losing our rights to live, work and trade in the largest market in the world, a majority of British voters decided that it was a risk worth taking. Almost immediately, the markets set about proving that the dire warnings of the consequences of Brexit were not just scaremongering. As I write, the pound is down 10% on its already diminished value of last week, and the political chaos ensuing at Westminster is if anything worse than predicted. Planned investments are being put on hold, deals cancelled. We have a lame duck executive, and total confusion as to how and when we will leave the EU, and what kind of relationship we will have afterwards with the rest of what remains our continent.

This raises the question: did British voters really want all this? If so, the 52% who voted leave must have a remarkable taste for risk, an obsession with the abstract principle of sovereignty, or a masochistic desire to see their country become poorer. Or simply such a degree of discomfort with current levels of immigration that any price is worth paying to reduce it. This seems implausible. The same electorate, last year, rewarded a Conservative party that nailed its colours to the mast of economic stability and fiscal prudence. Now, we have opted for the opposite. Growth forecasts are revised down, the Bank of England has prepared emergency measures to help stabilize the banking system, and the ratings agencies have downgraded UK government debt. And it's only Tuesday.

It seems much more likely that many voters simply did not believe the warnings that Brexit would make us poorer. And why should they? Fully understanding the complex workings of a modern market economy embedded in a global context is beyond the abilities of even our finest academic specialists, who notoriously failed to foresee the great financial crisis of 2007-8. The economic models most voters have in their heads are at best extraordinarily crude, and in most cases almost non-existent. Given such intellectual uncertainty, voters could either take on trust the statements of a rather alien group of distant technocratic elites with a patchy track record, or go with their guts. The latter was even more likely given that leave voters disproportionately did not expect their side to win.

However, the economic downturn already emerging is likely to encourage a rapid updating of many voters' views. In much the same way as inveterate smokers can ignore the widely available medical advice on tobacco yet only give up their habit at the first real signs of damage to their health, the economic consequences will almost certainly change minds. Sure, many Brexiters will remain convinced they made the right choice, responding to cognitive dissonance by clutching at whatever consistent narrative they can to make sense of it all (a recession was coming anyway, or was caused by the failure to remove the foreigners quickly enough, or by our embittered European neighbours sabotaging our economy in revenge... the headlines write themselves). But the most exposed will surely begin to wonder if they made the right choice. Given a second chance, they may vote to remain, if a vote is held before full withdrawal takes place.

This raises a broader issue about democracy. After losing the vote, Remainers (including myself) took to social media to broadcast their anger, frustration and bitterness, often belittling the intellect of the leavers. Many insisted a second referendum should be held, because of the egregious lies told by some of the leaders of the Leave campaign. Leavers (or at least the politer ones) insisted that democracy means accepting the result, even when it goes against you. But there is a serious democratic case for a second referendum.

A vote is in part a choice under uncertainty, based on the expected utility of the policy chosen. It appears that many voters felt that the choice of leaving the European Union would reduce immigration and/or enhance British sovereignty, with relatively bearable economic costs. But it may well turn out to be the case that the costs are unbearable, perhaps especially for many lower income supporters of Brexit. Put another way, they made a mistake. They were warned of that mistake, but made it anyway, perhaps swayed by the well-fundedpropaganda machine convincing them that Brexit would work in their interests. They should be given a chance to reverse that decision, if evidence emerges of a significant number of voters changing their view (perhaps through a general election, a likely scenario given current chaos).

Would this be undemocratic? Referendums are notoriously blunt instruments of democracy. They reduce complex questions to a binary choice, and unlike other votes, offer no chance to revise our choice in the light of new information. When we elect a parliament in general elections, we do so on the basis of the concept of parliamentary sovereignty, which means, amongst other things, that 'no parliament can bind its successor'. This is the very opposite of the logic of the democratic vote as one-off, irreversible decision. And, in the case of the European Union, it is worth recalling, this is already the second referendum we have held. The reasons for holding a second vote were ostensibly that the European project has changed dramatically since 1975, when we first voted on membership. In other words, we chose to change our minds in the light of new information.

So there is a case for holding another vote (probably on a new arrangement, such as the 'Norway option', rather than on EU membership itself). The problem is that it is hard to imagine doing so quickly, since that would obviously subvert the people's choice. The evidence of serious damage to the national interest must be allowed to pile up. But some of the direct consequences of voting to leave last week could well be irreversible. Choices to move production out of the UK to retain access to the single market, individual decisions to leave the UK to work elsewhere, long term investment decisions that can only be made once, not to mention the destruction of trust in relationships with other countries' governments, are unlikely to be rewound even if we do change our minds. It is perfectly possible that we have already done ourselves permanent and irreparable damage. Like the smoker, we had to suffer the heart attack before we took the medical advice seriously.